Trading strategy design in financial investment through a turning points prediction scheme

摘要

Turning points prediction has long been a tough task in the field of time series analysis due to its strong nonlinearity, and thus has attracted many research efforts. In this study, the turning points prediction (TPP) framework is presented and further employed to develop a novel trading strategy designing approach to financial investment. The TPP framework is a machine learning-based solution incorporating chaotic dynamic analysis and neural network modeling. It works on the ground of a nonlinear mapping deduced in financial time series through chaotic analysis. An event characterization method is created in TTP framework to characterize trend patterns in ongoing financial time series. The main contributions of this paper are (1) it presents an ensemble learning based TPP framework, within which the nonlinear mapping is approximated by the ensemble artificial neural network (EANN) model with a new parameters learning algorithm; (2) a genetic algorithm (GA) based threshold optimization procedure is described with a newly defined performance measure, named TpMSE, which is used as a cost function; and (3) a trading strategy designing approach is proposed based on the TPP framework. The proposed approach was applied to the two real-world financial time series, i.e., an individual stock quote time series and the Dow Jones Industrial Average (DJIA) index time series. Experimental results show that the proposed approach can help investors make profitable decisions.